Mastering Risk Management

RISK APPETITE FRAMEWORK

A risk appetite framework sets out clearly how risk appetite is governed. It will discuss, as above, how the firm’s risk capacity, risk appetite, risk limits and risk profile all interlink with each other. The overall approach will be set out through which risk appetite is established, communicated and monitored including policies, processes, controls and systems. A framework will state the material risks that should be considered at a firm-wide level and these will include reputation.

There will of course be alignment with the firm’s strategy as well as its business plan, capital planning and compensation schemes. Together with the risk appetite framework (see Figure 4.2), these elements provide a common context for ...